Building Portfolio on Average Income, Reality or Illusion?

The tighter lending criteria have nothing to do with inflation or the boom .

APRA and ASIC wont be loosening anything, anytime soon.

 

Agree. Anyway, half of Australia isn't booming, so that's a moot point.

 

That's not correct Michael. In fact, very few assess "differently". Almost all of them assess at a very similar, regulator imposed rate of between 7-8% .

 

Of course it will relax...mortgages are a money earner.....APRA wants the lensing standards tightened as the lending quality and checking has dropped. This is short term.

It is a blunt instrument as it is directed at mostly the Sydney and Melbourne markets. Once these pull back...which is likely to be sooner than later...lending will loosen up. It always does. Thus why I reckon Sydney is in for a correction.

Having said that...there are opportunities for smart players.

Are you sure you work for a bank?...you seem have to have difficulties grasping with how credit tightening and loosening works.

Having said all this, the spirit of APRA policy is not fundamentally different. Just that what was guidance is now more precritpive
APRA locks in tougher mortgage rules

The changes are mostly in regards:

1. Assessing bonuses, rents, and non-salary income at 80%. Previously just guidance. So question is does this make it easier for people on non-salary incomes as it is now more prescriptive.

2. Tighter focus on LMI loans and risks associated with them.

3. Stress testing loans with 2% higher serviceability rate. Previously banks were using 7.8%...will this make is easier borrow? As assessment rates on current rates would sit at around 6.8%..assuming 4.8% variable rate.

4. Assessing of true living costs and associated increase to income not just on size fits all.

5. SMSF tightening...this is a big one as every man and their dog is doing this. This is where the issue lies...this is risk area and have highlighted this before. Putting a kobosh here I reckon would take 15% of purchases out of the market.

 

New credit policies described in The Age:

APRA locks in tougher mortgage rules

 

Yep...commented in post above...all have been known about as a guidance since last year...now they are just making it more black and white.

The change is pretty minor in my view bar the SMSF crackdown. The 2% assessment rate might have a silver lining.

 

You may have seen credit tightening and loosening before, but I would submit that you've seen loosening far more. That's almost exclusively what you ( and I, and others) have been the beneficiary of since you have been accumulating since 1999 . Credit got easier and easier for almost all of your accumulation phase. The only tightening you or any of us have seen is for a relatively short period of time around 2008/9 when some lenders (but not all) restricted LVR's and withdrew lo doc and no doc products because securitisation markets were closed or tightened for a period of time post GFC. But what never happened during any of that time was the removal of "actuals" or the old poverty index living costs.

What is happening now is regulatory intervention, not market intervention. The differences are plain to see. We are seeing mandatory sensitised assessment rates . We are seeing speed limits on Interest Only lending. And we are seeing an aggressive focus on responsible lending , resulting in significantly increased household expenditure measures and income shaving of some or all secondary income sources like rent, overtime, bonuses, commissions etc . Absolutely none of which formed any part of any previous examples of tightening, post GFC .

What you are proposing is that APRA and ASIC will both relax their positions on sensitised assessment rates, I/O speed limits and HEM's, when we are actually seeing the complete opposite. Just this past week NAB have introduced even more postcode restrictions and today we have seen ANZ ramp up their income verification requirements. And more importantly, APRA has again written to all ADI's last week , reinforcing their commitment to these ideals and policies, and reminding them that they are not yet satisfied that all lenders are being as prudent as they would like... Take from that what you will...but until their rhetoric changes, it appears very clear that the regulators arent going to be loosening anything, anytime soon.

In time that may change, but right here, right now, investors starting out need to play by todays lender rules, not yesteryears rules.

 

I'm with @euro73 on this - don't expect to see loosening anytime soon. Rates might continue to fall, which will increase capacity to paydown existing debt or spending on retails etc - but don't expect to have your borrowing capacity increase unless you're paying down non-deductible debt.

Given that I fall into the bracket that has gone from 3-4 house more to hit the wall, I personally will be looking at doing #4 @euro73 mentioned earlier in the thread, but looking to do it based on a LIC/Shares approach - So far from what I've seen from a lot of the new dual occ properties coming up, overpriced - paying premium for the stock. I'm sure like anything their is good stock - but don't think it's going to have the best CG. I want both CG and cashflow.
My partner hasn't even started in the property investing game, so will be able to utilise my equity and go buying 3-4 under her name.

 

I don't see APRA going away anytime soon either. The mindset of most people seems to be: "Interest rates are ultra low, let's go in debt up to our eyeballs, what could possibly go wrong ?". Wage growth is stagnant and rents have remained sluggish, which is probably another reason why the banks are cutting down on IO loans.

The global economy is about the learn what every adult should know

 

I missed that bit on your post....but as you say, to make it dead clear and unambiguous in the media is telling.

 

I am with Brady on this and he is with Euro - it will be a while before things get easier again.

 

@sash... so are @Brady and @euro73 and @Terry_w and @2FAST4U also all wrong? To be quite honest I think many of these posters know what they are talking about. They aren't newbie posters with no understanding of the banking industry........ or is it the fact that only you know the truth? Is everybody with years of experience in banking and finance simply clueless idiots?

 

Question....you are looking at it on the premise that the housing market moves at the sale trajectory as in the last 4 years. We know that the asset values in Sydney and parts of Melbourne are inflated. This policy change will be short lived as it will constrain borrowing capacity in the short term...but everyone including APRA and ASIC know very well if there is no flow of money into the economy...i.e. money circulating via the buying houses trading up etc...the economy will dive. This will also translate into reduced housing starts and rents will drive up.

No govt who want to loose their position as result of stupid decisions and compromise the country thus why it will be short lived. Just give it 2 year...it will e very evident.

Economics 101 really...as I said this policy setting is late to the party they should have been doing this around 2013.....as usual those professors are looking at outdated stats.

See above response to Euro......

 

Nice wedge...but am not buying.....

See my response to Euro...the issue is about managing the systemic risk which as developed....

On the premise that you believe credit will tighten for years.....are you still of the opinion that the Sydney property market is "bullet proof"....you can't have your cake and eat it too.

Something to ponder.....now where is the water....again.....

 

Yes...so there is consistency in how the banks implement the policy set by APRA...the question is whether this will be applied to majors or all financial institutions. Only time will tell.

As I said this is a blunt instrument...and works similar to raising interest rates. Thus the capital flow will flow form housing to "more productive" endeavours. The trouble is in Australia..when the housing market stops it also affect the general economy and general business confidence.

So the Professores at APRA and ASIC who have been sleep at the wheel are now playing a dangerous game of blind mans bluff....my opinion...

It is also funny...given it is targeting serviceability....the impact will affect the Sydney and some parts of Melbourne the most ...less people will be able to buy there due to reduced capacity to borrow. What da ya think will happen to those markets....

Brisbane, Adelaide, Hobart, Perth are still very affordable ...still plenty of homes under 25 klms to city for less than 400k. ...well for now at least.

Silver lining....Brisbane, Adelaide, Hobart, and Perth may start moving again....as investors with lower capacities move there and locals buy...

 

Welcome back @sash

 

Would utilising commercial properties for the debt reduction also work in the same way as purchasing NRAS or dual income properties?

Thus building a portfolio that consists of both residential and commercial.

The downside would be having to deploy a bigger deposit?

 

Fortunately there are quite a few lenders that fall outside of APRA, they're still able to set their own policies. ASIC might pull them in a bit, but if people are careful with there investing it is still possible to build large portfolios with a modest income.

 

Glad to be back........

Amen to that....I was beginning to think we all had to pack up and put up "Property Investors Need Not Apply"....

 

Absolutely....so long the continuity of the lease and quality of the property is solid..know some people who built up assets by doing his. In my opinion superior to NRAS or dual income properties.

I see people having dual income properties to granny flat...building these are a CF proposition..not a CG proposition as much.

I see people buy houses for 500k and add 150k granny flat and the end value is only about 680k and the return is about 800pw.

If they would have just done a 20k reno....they would have got a house worth 550k...rent would be about 520pw.